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iied_ cities as engines of growth iied_ cities as engines of growth

Cities as engines of economic growth: The case for providing basic infrastructure and services in urban areas

Focusing on the electricity sector, this paper demonstrates that the investment needs associated with providing basic infrastructure and services to un-served urban populations are small relative to their benefits. Nearly 200 million urban residents, primarily in sub-Saharan Africa, currently lack access to electricity. Providing them all with a basic level of electricity access– enough to power two light bulbs, two mobile phones and a couple of small appliances – would cost $1.37 billion per year to 2045. Generating this electricity from low-carbon options (consistent with avoiding a global average temperature rise of more than 2°C) would cost $1.38 billion per year – less than 1 percent more than using conventional technologies. These estimates include the capital, operating, maintenance and financing costs of the generation, transmission and distribution infrastructure. This equates to less than 0.03 per cent of the world’s annual fossil fuel subsidies (as estimated by the International Monetary Fund in 2015).

This global analysis illustrates that relatively small amounts of finance are needed to provide basic services and infrastructure to the urban poor. However, mobilising these resources depends on the political will to introduce enabling policies and local capacities to make the infrastructure investments. In the absence of the necessary commitment and capacities, rising inequality in urban areas is likely to constrain economic growth by limiting the productivity of low-income groups. This suggests that cities can only achieve their potential to be engines of economic growth in the longterm if they prioritise poverty reduction in the near-term.